Gas drillers put best foot forward

PITTSBURGH — The rows of seats in the cavernous David L. Lawrence Convention Center stretched as far as the eye could see, and the hall was full as Range Resources Chairman and CEO John Pinkerton delivered a call to action Tuesday at the Marcellus Midstream Conference.

“This play has enough return in it so we can take a higher standard of care,” Pinkerton said to the hundreds of natural gas industry executives in attendance. “Our charge is to make sure it’s done safe, in an environmentally sensitive way, so we can put our heads on our pillows knowing we’ve done what we can.”

Range Resources, which has land holdings in Centre County, is one of a select number of drilling companies pushing for more stringent oversight of the industry as it ramps up its activities in the gas-rich Marcellus Shale.

“You tend to drive slower and more cautiously if state troopers are out. We’re the same way — when regulators are out there, things button up,” company spokesman Matt Pitzarella said. “The second part is enforcement. If Range or any other operator should commit a (violation), if you enforce the fine, that changes behavior.”

Drillers have plenty of other reasons to want to minimize their environmental impact. U.S. Sen. Bob Casey, D-Pa., citing the industry’s public safety record, recently introduced a bill that would give the Environmental Protection Agency control

over regulating hydraulic fracturing, the process being used in Marcellus Shale. And the industry also faces public scrutiny over its processes and whether a severance tax should be instituted to ensure the state can cover the costs of potential future environmental cleanup.

Both Range Resources and Anadarko Petroleum, which also has a presence in the county, exceed state-mandated requirements for well casings on all the drilling they do in Pennsylvania. Range Resources cements every steel string of casing it puts in its wells, while Anadarko adds an extra cemented steel casing that extends below the water table as an added buffer against migration between gas and frack water inside the well and the environment outside it.

Range Resources has also gone beyond Pennsylvania’s industrial requirements for reporting its recycled water, disclosing the fluids it uses in its fracking process, and adding extra layers of protection to its water impoundments. It also pays voluntary “nuisance fees” to residents it feels have undergone or might face excessive inconvenience due to its activities.

Anadarko, for its part, lines all of its pads with an impermeable lining to prevent against spills, and has introduced a closed-loop system that helps the company recycle frack water and reduce its consumption of fresh water.

“The reason we go beyond the requirements of what the DEP requires is that, everywhere we operate, we look at our corporate best practices and local and state regulations, and adhere to the greater and more environmentally sound practices of the two,” Anadarko spokesman Matt Carmichael said.

Rex Energy, which is based in State College and has an interest in some Centre County wells, also lines all of its pads and uses a closed-loop system. Range Resources, Anadarko and Rex all perform baseline water testing for residents living up to 2,500 feet from planned well sites; the state suggests, but does not require, testing out to 1,000 feet.

Each of these improvements adds up to millions of extra dollars spent. But even with the anticipated profits to be had in the Marcellus play, as noted by Pinkerton, many question whether companies will be motivated to spend more than they have to.

“We’re environmental stewards, and we pride ourselves on that. We care about our neighbor and definitely don’t want to have any negative impact on the commonwealth,” said Melissa Hamsher, Rex Energy’s vice president of environmental, health, safety and regulatory compliance.

“Also, it hurts us a lot more if we do it incorrectly. It’s a big expense to do these things we’re doing, but we’re making sure we’re never in a situation where a substantial violation might jeopardize our operations in the state.”

Shelley Alpern, a vice president at Trillium Asset Management, a $1 billion investment management firm with a “deep commitment to advancing environmental sustainability, social justice and human rights through innovative investment, research and advocacy,” according to the firm’s website, said shareholder activism is one way to motivate publicly traded companies to improve their codes of conduct.

“For years, we’ve invested in Anadarko,” Alpern said. “We’ve always found them to be responsive.”

Trillium filed a shareholder resolution with Anadarko in December requesting the company compile a report listing the “known and potential environmental impacts of Anadarko’s fracturing operations” and policy options for the company to adopt “above and beyond regulatory requirements and (the) company’s existing efforts, to reduce or eliminate hazards to air, water and soil quality from fracturing operations.”

The firm withdrew its resolution last week, citing the company’s progress on releasing information to the Securities and Exchange Commission and on its website. Alpern said more disclosure and higher environmental standards are good for the company’s economic health.

“The more that shareholders, regulators and the general public can see some of the positive initiatives Anadarko is taking, the more that will be positively reflected in its share price,” Alpern said. “Doing the right thing does pay off —

There were 2,021 violations recorded at Marcellus Shale wells, including 38 in Centre County, between January 2008 and October 2010, according to the Pittsburgh Business Times’ searchable database, which is compiled from information provided by the Department of Environmental Protection. Included in the database are administrative violations and of environmental health and safety violations.

During that time period, Cabot Oil and Gas was ranked highest with 417 violations, followed by Chesapeake Energy with 407 violations and Chief Oil and Gas with 402 violations. Further down the list, Anadarko Petroleum had 160 violations, Range Resources and Williams both had 115 violations, Rex Energy had 13 violations.

In Centre County, Exco Resources had 22 violations, Anadarko Petroleum had 12 total violations and Carrizo Oil and Gas had four violations.

A few examples of offenses committed in Centre County:

pit. Mailbox containing well permit and some erosion and sediment and stormwater inspection reports is located in a tree near the entrance — erosion and sediment plan not on site. Erosion and sediment controls are in place and working adequately. As of Dec. 10, 2009, past violations resolved, case closed.

Feb. 24, 2010, Anadarko Petroleum,Curtin Township.Rat hole not filled — drilling is complete and a valve is attached to the casing. Rat hole was not filled before drilling equipment was moved off of location.

March 18, 2010, Carrizo Oil and Gas,Rush Township.Failure to restore site within nine months of completion of drilling or plugging. Well drilling was completed April 19, 2009. Fracking was completed Aug. 24, 2009. Well is completed and not yet in production. Site ID is still in place, no well tag in place.

March 24, 2010, Exco Resources,Burnside Township.Failure to minimize accelerated erosion, implement erosion and sediment plan, maintain erosion and sediment controls. Failure to stabilize site until total site restoration. Conductor has been set and well is currently being air drillied. Water and cuttings are being directed into a lined pit. The liner does not appear to be compromised in any way and freeboard is being maintained.

Report within 30 days of completion of well. Production well with a digital meter. Completion report never that’s part of the investment theory that we apply.”

High-profile gas-related accidents, including a well blowout in Clearfield County and the migration of methane from a drilled well into drinking water supplies in Dimock have increased concern that state regulations are not strong enough, causing a drive to shift regulation of the industry to the federal level.

The industry, as a whole, staunchly opposes Sen. Casey’s bill, known as the FRAC Act, arguing regulatory powers should be left in state hands.

“Just because it’s federal regulation doesn’t mean it’s any better or any different (than state regulation),” Pitzarella said. “All you’ll end up having is a dramatic slowdown while the EPA consults the states, who’ve been (regulating the industry) for 70 years.”

Revised state regulations approved by the state Department of Environmental Protection late last year strengthen the requirements companies must meet in order to drill.

DEP spokeswoman Katy

submitted. Resolved Aug. 16, 2010.

June 15, 2010, Anadarko Petroleum,Snow Shoe Township.Discharged 150 gallons of hydraulic fluid to the ground, the potential for pollution to waters of the commonwealth. Hydraulic fluid remains under the rig until the rig is moved off-site for final cleanup.

Sept. 8, 2010, Exco Resources, BurnsideTownship.Failure to notify DEP of pollution incident. No phone call made forthwith. Two diesel fuel spills were not reported to the department, (inspector) found the spills during an inspection of the well pad and notified the operator. The two spills constituted approximately 20 to 30 gallons.

Sept. 29, 2010, Anadarko Petroleum,Snow Shoe Township.Discharge of industrial waste to waters of commonwealth without a permit. Spillage of what appears to be a relatively small volume of drilling fluids, no apparent movement from immediate area. Anadarko notified by phone on Sept. 30, 2010.

Dec. 22, 2010, Anadarko Petroleum,

control or dispose of industrial or residual waste to prevent pollution of the waters of the commonwealth. Production fluid released from a line disconnected from a gas water separator by a contract worker and left uncapped or sealed for 24 or more hours. Gresh acknowledged the update was necessary and overdue.

“Many of the previous regulations on gas well construction and water supply replacement were created in July 1989 and, for the most part, had not been changed,” Gresh wrote in an email. “Previous rules did not provide enough details on safely casing and cementing wells. Also, previous rules did not address the need for an immediate response by operators to a gas leak complaint. And, they did not require operators to inspect wells regularly.”

Still, even with the new rules in place, there’s a good chance that with the amount of drilling Pennsylvania is likely to see over the coming years, more accidents will occur. A recent incident involving Chesapeake Energy, considered by those in the industry to be a more responsible driller, reveal problems such as gas migration through faulty well casings may even occur to those companies that exceed state standards.

On Sept. 2, the DEP received reports of bubbling water on the Susquehanna River in Wilmot Township, Bradford County. According to a DEP news release, the gas was found to be migrating from near six of the company’s wells located on three pads approximately two to three miles northwest of the river. After the incident, the company instituted a review of all 171 wells it had drilled in Pennsylvania and announced it would add an extra string of steel casing and cement at the potential depths of shallow gas.

Pitzarella, of Range Resources, said preventing all accidents may be difficult, but it should be the goal of all drillers.

“I believe we all have room for improvement. You’re only as good as your worst day, and only as reputable as an industry as your weakest player,” he said. “It’s a big industry and we have a lot of different opinions … but a vast majority of companies want to do it the right way.”